The Response of Hours to a Technology Shock: A Two-Step Structural VAR Approach

Patrick Fève and Alain Guay

Journal of Money, Credit and Banking, 2009, vol. 41, issue 5, pages 987-1013

Abstract: The response of hours to a technology shock is a controversial issue in macroeconomics. Part of the difficulty lies in that the estimated response is sensitive to the specification of hours in structural vector autoregressions (SVARs). This paper uses a simple two-step approach to consistently estimate the response of hours. The first step considers a SVAR model with a relevant stationary variable, but excluding hours. Given a consistent estimate of technology shocks in the first step, the response of hours to this shock is estimated in a second step. Simulation experiments from an estimated dynamic stochastic general equilibrium (DSGE) model show that this approach outperforms standard SVARs. When applied to U.S. data, the two-step approach predicts a short-run decrease followed by a hump-shaped positive response. This result is robust to other specifications and data. Copyright (c) 2009 The Ohio State University No claim to original US government works.

Date: 2009

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Working Paper: The Response of Hours to a Technology Shock: a Two-Step Structural VAR Approach (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:mcb:jmoncb:v:41:y:2009:i:5:p:987-1013

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